A New Mexico Consumer Survey: Understanding the Impact of the 2023 Rate Cap on Consumers
In 2022, New Mexico Governor Michelle Lujan Grisham signed into law a 36 percent interest rate cap that took effect January 1, 2023. The law applied specifically to nonbank lenders, the financial institutions that provide the majority of personal loans to underserved consumers. This survey had a singular goal: to better understand how this interest rate cap impacted consumers who took out loans with APRs above 36 percent before the imposition of the rate cap. Rate cap proponents often claim that most Americans support capping loans at 36 percent, yet they primarily survey those who are not users of short-term or small-dollar loans with APRs higher than 36 percent. This survey seeks to correct this imbalance by surveying the actual borrowers of these loans.
A Survey of Illinois Borrowers Highlights the Harmful Effects of the State’s 36 Percent APR Cap
A recent survey of borrowers who took out short-term, small-dollar loans found that after Illinois Governor JB Pritzker signed a 36 percent annual interest rate cap into law last March, their financial situation did not improve as promised, and actually declined in many instances.
American Consumers Benefit from Equitable Online Lender Loans
According to new data from a survey conducted by Morning Consult on behalf of the Online Lenders Alliance (OLA), Black and Hispanic adults are significantly less confident than other adults in their ability to get credit from traditional financial institutions. As a result, many hesitate to even apply for credit. However, these same consumers believe that online lenders are less discriminatory against applicants due to race or ethnicity than other lenders.
Americans Support Access to Credit for Underbanked Consumers
According to a new survey conducted by Morning Consult on behalf of the Online Lenders Alliance, a strong majority (66 percent) of adults in America believe that the most the government should allow lenders to charge for a two-week loan of $100 far exceeds the 36 percent annual rate cap proposed in Congressional legislation and promoted by consumer groups. Furthermore, after learning that more than 90 million Americans are either underbanked or credit-challenged, two-thirds of adults (69 percent) think it is important that underbanked consumers have access to loan products.
Global Study Finds Negative Effects – Rate Caps Go Too Far
Lower credit supply and loan approval rates for small and risky borrowers are among the negative results researchers found when they studied a variety of interest rate restrictions around the globe. The World Bank’s Policy Research Working Paper by the Finance, Competitiveness and Innovation Global Practice undertook case studies that showed “while some forms of interest rate caps can indeed reduce lending rates and help to limit predatory practices by formal lenders, interest rate caps often have substantial unintended side effects.” The side effects included: increases in non-interest feeds and commissions; reduced price transparency; lower number of institutions and reduced branch density; and adverse impacts on bank profitability, in addition to the lack of access for smaller and riskier borrowers. The paper goes on to discuss alternatives to reduce the cost of credit, given the potential negative impact of rate caps.
Online Lenders Alliance White Paper Outlining Key Policy Priorities for 2021 and Beyond
As part of its mission to promote a diverse and responsible marketplace for innovative online financial products and services while expanding credit access for all consumers, including those who are financially underserved, the Online Lenders Alliance (OLA) today issued a White Paper detailing its activities and policy priorities for the Biden Administration, Congress, and regulatory bodies.
Online Lending: Fintech Innovation Drives Credit Inclusion
OLA’s latest white paper, highlights how innovation in the financial technology space is playing a role in driving credit inclusion for the approximately 100 million Americans who currently fall into the non-prime credit category. The report details the vital role that online lending plays in the economy and in individual consumers’ lives, and is guided by the idea that increased innovation, access, and inclusion should be societal goals. When innovation and access are nurtured as key economic values, online lending flourishes. This, in turn, allows more people to be included in the economic activity of the United States and pursue the American Dream.
